Guyana may be willing to ease some ‘penalties’ in new oil contracts

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As Guyana considers a second auction of offshore oil exploration licenses, the government may be open to easing some terms in its model petroleum contracts, to attract more investors. 

During a Thursday press conference, Vice President Bharrat Jagdeo explained that these include requirements to pay the government if contractors do not meet expenditure commitments. “People are complaining it might be a bit too onerous, and we may be a bit more flexible on those sorts of conditions,” he said. 

In Guyana’s offshore model contracts for shallow and deepwater contracts, contractors are required to submit “irrevocable” guarantees against their work programs on the effective date of the contract. The guarantees, effectively penalties for not meeting commitments, including

  • 20% of the value of the expense commitment for the substantive work program;
  • 100% of the value of the expenses to retain a discovery not yet considered commercial; 
  • 100% of the cost to plug and abandon wells and site restoration associated with exploration, appraisal and retention; 
  • US$5 million to perform any obligation not covered by the guarantees above.

While the government may be open to easing these conditions, Jagdeo doubts it will budge on the fiscal terms. “There’s been a call to reduce, that our fiscal conditions are very high, well, onerous. We don’t share that view. We don’t share that view that the 10% royalty is unreasonable, and a 10% tax, especially in a country now that is not a frontier country any longer,” he said.

The fiscal terms have effectively almost doubled the government’s initial take from 14.5% in the Stabroek Block petroleum agreement, to 27.5% plus a 10% corporate tax in new contracts. 

Aside from examining the penalties, the government plans to commission a seismic survey, boosting data to promote the potential section auction. Jagdeo said a call for a surveyor returned eight expressions of interest.

The government, he said, will rely on advice from its international advisors, with respect to deciding on a timeline for the second auction. 

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